Record Backlog and Investments Poised to Grow Future Revenues, But with Slight Margin Compression

What are the underlying business or industry changes driving this perspective?

• Robust demand for Lockheed Martin's broad portfolio including aircraft, helicopters, satellites, and advanced digital technologies has led to a record $161 billion backlog, signalling strong future revenue growth potential.
• Strategic investments in research and development (over $3 billion in 2023) and capital are aimed at positioning the company to capitalize on future growth opportunities, which may positively impact earnings and net margins.
• The company's focus on expanding the defense industrial base, demonstrated through collaborations with Intel, Verizon, Microsoft, and others for hybrid 5G and military datalink networks, could enhance Lockheed Martin's competitive edge and contribute to revenue growth.
• Deepening international relationships and securing contracts for the development of systems like AIR6500 with Australia, and expanding manufacturing capabilities in countries like Australia for guided munitions, support the expectation of sustained demand, impacting future revenue.
• Lockheed Martin's emphasis on implementing anti-fragility measures within its supply chain, and strategic minority investments in startups for additive manufacturing advancements, are poised to enhance operational resilience and efficiency, contributing to an improvement in net margins.

Figures in the charts may differ slightly from those mentioned in the narrative

How have these above catalysts been quantified?

• Analysts are assuming Lockheed Martin's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.2% today to 9.1% in 3 years time.
• Analysts expect EPS to reach $29.15 ($6.7 billion in earnings) by about February 2027, up from $28.64 today.

Figures in the charts may differ slightly from those mentioned in the narrative

What could happen that would invalidate this narrative?

• The increasing reliance on fixed-price contracts, as opposed to cost-plus contracts, has historically led to margin compression across Lockheed Martin's segments, which could impact future profitability.
• Delays in the Tech Refresh 3 (TR-3) for the F-35 program may cause production rate challenges and affect delivery schedules, potentially impacting revenue and earnings.
• Supply chain issues, especially in missile production, persist despite efforts to mitigate them, which could restrict the company's ability to meet demand and negatively affect sales growth.
• The shift towards more aggressive bidding and fixed-price development contracts over the past decade has contributed to a reduction in margins across the company's segments, posing a risk to future margin expansion.
• The depletion of U.S. missile ammunition stocks and lingering supply chain challenges might limit Lockheed Martin's ability to capitalize on increasing demand, potentially impacting revenue and profitability.